Last December, I published a major article ( *****2010 Food Crisis for Dummies*****) explaining why the world was heading towards a major food crisis in 2010. Well, the 2010 Food Crisis IS HERE!

Shortages have driven up prices and we are now entering the next stage of the food crisis. Some of my long time readers will remember my March follow-up entry ( *****2010 Food Crisis Taking Shape***** ) in which I laid out the three stage of the food crisis.

… What is going to happen next is simple:A) Prices will rise driven by growing shortages.B) The fear of price collapse in soybeans will fade away and doubts about the USDA will grow (ie: “if the USDA' s numbers are right, why are prices still going up?”). As end-users try to get out of their underbought and oversold positions, the price rises will accelerate.C) Panic explodes as faith in USDA numbers collapse. Everyone becomes a spot buyer.

Stage A of the food crisis (shortage-driven price spike) has occurred. Now we are entering stage B (confusion, growing doubts in government estimates, accelerating price rises). This is confirmed by Kory Melby, who asks the question I have been waiting for:Where Are the Soybeans?

Where Are the Soybeans?29 Jul 10

Cash soybean bids remain firm in the interior of Brazil.

Soybean crushers do not have enough soybeans to make it until November.Soybean crushers are bidding a negative margin to secure cash soybeans.

DROUGHT SENDS WHEAT SKYROCKETINGlast updated: July 30, 2010 11:05:52 PMWheat prices surged in July by the biggest amount in a half-century as severe drought in Russia and other former Soviet republics destroyed grain crops.— Wheat prices rose $1.97 a bushel, or 42 percent, this monthand are at their highest level since September 2008.…

“We have exciting stuff happening in grains,” says Jerry Gulke of the Gulke Group. “You almost have to see it on paper to believe it. I don' t remember when I' ve seen all commodities look this bullish at once.”Gulke learned long ago that you can' t argue with the technicals—the charts often tell you something is going on in the markets that you can' t readily appreciate in the fundamentals. The charts for wheat, corn, soybeans, bean oil and maybe bean meal all are now long on both a weekly and monthly basis, he says. “This generally means we will see an upward bias for the next 12 to 18 months.”

“It could be we are in about the same situation we were in 2008,” says Gulke. “Now, we need something catastrophic to happen to not be in a bull market.”…

NEW YORK — Wheat prices surged in July by the biggest amount in more than a half century as severe drought conditions in Russia and other former Soviet republics destroyed grain crops.

If the gains continue, U.S. shoppers could see a bump up in prices of cereals, breads and pastas made with wheat. American wheat farmers, meanwhile, are going to get a boost in income, said Scott Irwin, professor of agriculture at the University of Illinois, Urbana-Champaign.Wheat prices have risen $1.97 a bushel, or 42 percent, this month and are at their highest level since September 2008. Its the biggest gain for wheat contracts according to records dating back to 1959, according to the Chicago Board of Trade.

With no immediate end in sight for the drought in Russia, wheat prices could continue to rally. That makes it more likely that the surging wheat could wind up affecting prices for bread, said Ephraim Leibtag, an economist with the USDA's Economic Research Service.

The lack of rain and extreme heat in Russia has already destroyed about 20 percent of the country's grain crop in key growing regions, according to Russian officials. Russia is a major exporter, but analysts say there are rumors that the country may cut off its exports,boosting demand for the remaining grain stocks in the U.S. and other major grains producers.Droughts are also afflicting Kazakhstan and parts of Ukraine, while heavy rains have damaged the Canadian wheat crop. The Canadian Wheat Board estimated that the 2010-11 yield would be the lowest since 2002 because about 13 million acres were either left unseeded or destroyed by heavy rains.Expectations for a global wheat crop smaller than last year's helped propel prices for wheat up by 5.4 percent on Friday alone. September wheat rose 34 cents to settle at $6.615 a bushel.…"Undoubtedly this will be good news in Nebraska, out there in the West, on the Great Plains," Irwin said. If farmers switch acreage from soybeans and corn to wheat, that could also drive an increase in the price of those commodities as supply shrinks,ultimately leading to higher meat prices for livestock producers and shoppers, he said.…

Below is the latest from Nogger. (Again, visit Nogger' s blog to keep up to date about the 2010 food crisis. It has great coverage of everything agriculture.)

Hamburg-based Toepferhave reduced their German crop production estimates quite sharply from last month saying that the cold winter delayed crop maturity. In addition "dry conditions in the last six weeks and the extremely high daytime temperatures have affected the yield potential of crops in many places," they add.…

Reports suggest that Ukraine will only manage to harvest "a maximum" of 8 MMT of milling wheat this year, well below domestic consumption of 11-12 MMT.

Having aggressively marketed and exported wheat of all grades throughout 2009/10 it will come as no surprise to hear that official records of milling wheat ending stocks from last season appear to have got lost in the post.One report I am reading suggests that the cash-strapped Ukraine's already have commitments to export 3 MMT of milling wheat this season.The maths on this one certainly don't add up. Even is this week's hastily introduced new regulations on exports effectively bars this 3 MMT from leaving Ukraine will clearly run out of milling wheat by spring.The country is estimated to produce 38-40 MMT of grains this year, down 13-17% from last season's 46 MMT. …

You'd have expected a profit-taking month-end sell off normally, but things suddenly aren't "normal" any more.Early calls for CBOT this afternoon are higher: corn up 2-4c, wheat up 8-10c, soybeans up 6-8c. …

Sharply higher global wheat plantings based on these prices that's for sure. Is anyone reading this old enough to remember the dim and distant past of 2007/08? What a year that was, you'll never believe it right, what happened was prices went through the roof just like now. …

The senile old duffers at the IGC have revised yesterday's export numbers before the ink has even had time to dry.They've just heard that there's a drought going on in Russia, which they seem to think might have a negative import on exports out of the region this year.

They didn't hear about the drought until today as the regular carrier pigeon they usually use is on holiday, and they've got a student in to cover for him.

They've dropped their July 2010-June 2011 Russian grain export estimate from yesterday's 15.8 MMT to 13.4 MMT today. To help balance that they've upped US exports by 2.5 MMT to 82.9 MMT.…Can you smell something funny?"

…Wheat, once again posted the largest percentage gains overall in our table. Continued weather problems in the FSU and Europe are still fueling the rally in wheat. Now that the spec funds have painfully bought back all of their short positions in wheat, some have “got religion” and are aggressively buying the market in an attempt to make back the money they lost. World buyers are also having flashbacks to 2007 and 2008, when hoarding behaviors by net exporter countries made food staples like wheat and rice very expensive and hard to buy.On paper the world stocks of wheat are still much above 2007 levels, but once burned is twice shy as they used to say. …

German yield fears help wheat prices to new highsBy Agrimoney.com - Published 22/07/2010

Wheat prices hit their highest for nigh on two years in Europe, and rose above $6 a bushel in Chicago, after farmers reported fears of yield losses of up to 20% in Germany because of dry weather.Farming association Deutschen Bauernverbandes, or DBV, said that wheat yields in the European Union's second-ranked producer of the grain would be "10-20% down on the year".Initial harvest results had shown signs of crop damage and lower yields, notably in areas with lighter soils, where the impact of this year's prolonged dry weather had been particularly severe.While the DBV did not make a production estimate, the decline implied by the data is greater than many of the forecasts so far being factored in. FO Licht analysts earlier this month estimated the German wheat crop at 24.86m tonnes, only 300,000 tonnes lower than last year's.…

Argentine wheat joins list plagued by dry weatherBy Agrimoney.com - Published 26/07/2010Argentina has emerged as the latest country to face potential setbacks over wheat,with adverse weather threatening its recovery from a century-low in plantings."A new concern is bubbling up in Argentina. It is dry,"US broker US Commodities said, noting that 79% of the South American country's intended wheat acreage had been planted as of last week. Typically, farmers have all but finished sowings by now.The concerns were echoed by Rabobank analysts, who warned of a "great deal of uncertainty" regarding Argentina's wheat crop, South America's biggest, and one typically drawn on by regional importers such as Brazil.

"Dry conditions in some areas of the country, especially in the south and west of the wheat region, might prevent planting intentions from being fully realised," the bank said.Dry weather has already cut hopes for cropsin the European Union, Western Australia and, in particular, Kazakhstan and Russia, sending wheat prices jumping on international markets.…More hot weather

…Russia and Kazakhstan, and potentially eastern Ukraine, are set for further hot and dry weather, with some areas forecast to receive temperatures of up to 108 degrees Fahrenheit (42 degrees Celsius)."The forecast for the week does not remain optimistic... with a further rise of expected temperatures," Agritel, the Paris-based consultancy, said, adding that temperatures in Russia had hit record highs on Saturday.…

Benzinga reports that problems in grain producing regions.

… Corn/Wheat/ Soybeans are all trading significantly higher as the drought conditions in southern Russia continue and with little if any prospects of relief in the very near future. Summer crops require rain however, in Russia' s case, and in the case of Kazakhstan and the Ukraine the lack of grain during July has put the summer grain crops there in very real danger.China and Canada have a very different problem which is the exact opposite of drought, these two countries have suffered heavy rains in the grain producing regions, which has limited farmer activity or has devastated what was planted. The strange weather patterns have succeeded in tightening world grain supplies. The grain market bears argue that there is a vast supply enough in fact to meet global demand and they are correct, for now. As long as there are no other problems regarding logistics, the industrialised world and I include the 2nd tier nations in this, will be able to feed themselves. There will not be a famine [Talk of famine means that stage C of the 2010 food crisis (Panic) is growing nearer]. However the important point I wish to make is that these reserves will be drawn down, taking the world into 2011 with limited grain reserves and high and rising prices. …

Abnormal US WeatherContinues in 2010In 2009, Farmers experienced the worst weather “EverSeen” (see *****Worst Harvest Season Ever Seen***** ). The worst weather "Ever Seen” means exactly what it sounds like: the worst in living memory or recorded history. Reading about the 2009/10 harvest was a long series of horror stories. Farmers saw the worst drought ever seen, the most rain ever seen, the worst hail ever seen, the worst flooding ever seen, the earliest snow ever seen, etc…

Prices also rose as heat and excessive rain threaten U.S. crops,Schultz said.From Texas to Pennsylvania, temperatures will be as much as 6 degrees Fahrenheit higher than normal over the next two weeks, increasing stress on plants, said Gail Martell, the president of MartellCropProjections.com in Whitefish Bay, Wisconsin.In the Midwest, the main U.S. growing region,the total rainfall during the past two months was probably the highest since 1960, after as much as 6 inches (15 centimeters) of rain moved east from South Dakota to Illinois in the past 24 hours, said Mike Tannura, the president of T-Storm Weather in Chicago.The data point to the warmest and wettest June-July period since 1960, Tannura said today in a report to clients. With forecasts for a hot August, there is increasing potential for large swings in yields, he said.

“Too much rain and warm evening temperatures have caused widely variable crop conditions across the Midwest and in individual fields,”Northstar Commodity' s Schultz said. “It' s still going to be a good crop, but not as big as farmers were hoping for just three weeks ago.”…

Strong Market Closes Mark Uptrend7/31/2010By Linda H. Smith… Behind the rally may be the hot summer nights, he adds. “Illinois has had the most consecutive 80-degree or more days in history, and it' s not cooling off at night. We are hearing from Drew Lerner (Global Weather) and Elwynn Taylor (Iowa State University) that it is hot nights that corn really doesn' t like. And there' s a chance of hot, dry weather in August.Trim 5% yield potential and that is a 650-million-bushel loss…

Nearly six weeks ago, lush fields of corn and soybeans across four Nebraska counties were reduced to dying stalks and shoots in a matter of minutes.According to the U.S. Department of Agriculture' s Farm Service Agency, 125,000 acres of crops were destroyed during the June 20 hail storm across areas of Gage, Lancaster, Johnson and Pawnee Counties.…Harms watched his maturing corn crop be destroyed by golf ball and tennis ball-sized hail from his home on June 20.He, like most other farmers, remarked that he had never seen anything like it as entire fields were destroyed, some with little evidence of a crop left behind.…Hasenkamp said the Gage County area has had yearly experience with severe hail damage to crops over the past four to five years.“I' d say we' re more educated on what to expect because of our experience with it,” Hasenkamp said. “But this is by far the worst I' ve ever seen in my lifetime.”…

Heavy outbreak of grasshoppers at work on West River fieldsJomay Steen, Journal staffTuesday, July 20, 2010 6:00 am

Every morning Doug Hlavka surveys the damage that a newly hatched plague of grasshoppers has set upon his cornfield and pastures.

“This is the worst infestation that I' ve ever seen,” Hlavka said.…Hlavka, 56, noticed the first hatchings about two weeks ago. The hoppers quickly moved into his pastures and fields to begin their ravenous work, he said.

“I lost 40 acres of alfalfa that I didn' t cut. I had 80 acres of corn that they' re eating up real fast. I' ve sprayed around its edges, but I' m waiting for an airplane to spray it,” he said.His wife, Val, lost her flower and vegetable gardens to the insects. He estimates that in certain areas on his ranch, there are 30 grasshoppers resting on each square foot of land. They have covered the sides of his home, outbuildings and fence posts.

Ever since the grain's last rally petered out two years ago, weakened by a bumper crop and global recession, importers have held all the cards. It is less than two months Chicago wheat slipped below $4.30 a bushel, nearly its lowest for three years, as buyers sat on their hands.Egypt's relaxtion of import rules only introduced last year shows that the balance of power has shifted a long way back to exporters.Allowing France to ship in 30,000-tonne volumes rather than the 60,000-tonne panamax standard is a more significant reversal than it first appears.

Why the concession?…What Cairo's move does show is that it wants to make life easier for France's merchants. And that's quite a shift for a buyer which focused, as importers' power grew, very much on getting value for money.…

…it doesn't look like Egypt is taking any chances with its supplies. And if the world's biggest wheat buyer is hedging its bets, the rest of the market should take note.

After witnessing a long bearish phase, finally soybean prices recovered during July month. NCDEX futures market prices increased nearly 8.1 % during this period.In fact, till last month, it was the general opinion that world oilseeds market would witness further fall in prices due to comfortable supply as Brazil, Argentina and US which are the major soybean producers harvested a bumper crop this year.…

Cash Premiums Driving Soybean Market HigherPremiums in the cash market are forcing soybean futures higher. Despite prices jumping to a six-month high, the premium for soybeans delivered in August is still 74 cents to 75 cents a bushel above August futures on the Chicago Board of Trade. Basically, while August Soybean futures have rallied to $10.53 per bushel, the real, cash price of soybeans is 74 cents higher at $11.27 per bushel.

This intense backwardation (where cash prices are higher than futures) is evidence of shortages and is the driving force behind the grain rally.

What Happens Next

Things are getting really interesting in agricultural markets. As for what happens next, I will point to my first entry on Soybean Overconsumption:

What this means

The soybean prices are going way up. How high they go depends on how long the current overconsumption lasts.In other words, right now it would take a 50 to 80 percent rise in prices to ration demand until next harvest. However,with two or three months more of the current overconsumption [TOO LATE], soybeans prices will have to double or triple to ration demand.

Watch for the USDA' s Madoff Moment

As his ponzi scheme collapsed due to withdrawal requests, Madoff had to face reality and shocked the world by admitting the truth.Investors who believed they owned billions found they had a little over 100 million to divide among themselves.The USDA, in the next [month]three to four months, will also have to face the reality and admit that the world is missing ten to twenty million metric tons of soybeans. The news should be as well received as Madoff' s announcement.

Hyperinflation always shows up in food prices first. I do expect hyperinflation and US treasurys to crash within months and it will have a perfect timing with your calculations.

I think many big investors expect the same that's why all commodities are bullish (denominated in dollar)

Thanks for the article, I've been following you for a while now, and I was curious whether tou will be right or not, and it seems you will.

I think we are far closer to the moment what you call Madoff-moment than many of us thinks. Things accelerate at an exponential pace usually and can go to extreme leveles in just days, not weeks nor months.

If 2 of us are competing for 1-1 gallon of gasoline when there's only 1.5 gallon on the market then prices can skyrocket to multiplied levels.

Keep on, I hope you will be right. Not because I want to see starving people, but because it's always satisfying to see someone predicting the future and being right!

Well Done Eric, You nailed it!ALl the price suppression is comming apart in the soft commodities, as unlike gold (for the time being) they can fool the market with their bogus info but ultimately they cant come up with the real stuff. Their aint no soya in them their bank vaults!!

Eric had predicted that the dollar would suffer as a result of the food crisis, what's the timeline for that to start?How low do you expect it to go?It's been pretty weak for the last month or so, down to 80.63 today.

Mr Goodhart is less optimistic about the economy but fears the Bank will have to raise rates to tame inflation as food prices soar. The price of bread is poised to climb after wheat futures rose in July at their fastest monthly rate in 51 years, partly a result of wildfires in Russia’s fertile Volga River region. Data from the British Retail Consortium (BRC) today shows that food inflation increased from 1.7pc in June to 2.5pc in July, fuelling Mr Goodhart’s fears.

He said: “There is a looming possibility we may get a spike in food prices rising out of climatic conditions, and not just temporarily. I wouldn’t be surprised if food prices lead a rise in inflation of 0.5 percentage points by the fourth quarter [of the year].”

I have driven all over Ohio and half of Michigan recently, and I have never seen the corn and soybean crops looks so good. I realize this is anecdotal, but it is a long way from Lake Michigan to the Ohio/West Virginia border, and 99% of the corn and soybean crops I saw were in the absolute best I have ever seen them, ever.

Supplies might get tight briefly, but we should get a mammoth harvest in the Fall to alleviate the problem.

another monster harvest of corn soybeans on its way in the usa. coming on the heels of abig what crop. sure problem areas exist they do every year. but overall totals will be huge. farmer dabba in nw iowa

Normally, this time of year, you see a lot of corn that is obviously stressed from lack of rain. The leaves sort of curl in on themselves. Also, the plants aren't as tall as other fields that were planted slightly earlier, and the leaves have a sort of blue-green, light-green, or yellowish-green color.

The only problem I have seen is some bare patches due to heavy rain, but not even much of this. Mostly tall, dark green plants with ears growing about three weeks earlier than normal.

There is an old expression, "knee high by the 4th of July", if you want a decent corn crop. It was shoulder high on the 4th of July this year.

The problem is gonna be finding enough storage space and barges to ship this crop out.